Most location decisions induce a long-term resource commitment from the firm so those decisions need to be made with great care. Each has certain pros and cons. For example, on-site expansion is generally cheapest and does not disperse the existing labor force; however, the layout may get de-optimized, and maintaining a single location maximizes disaster risk. Adding a new branch helps to diversify disaster risk, and the firm can design an optimal layout at the new facility; however, management now must deal with multi-site overhead, and any problems that exist at the current location will not be addressed. Relocating a facility may help to solve problems that exist at the current location, and the firm can design an optimal layout; however, there may be substantial moving and startup costs, the firm may lose good people who do not want to move, and maintaining a single location maximizes disaster risk.
Location-related costs, such as utility and local labor costs, are often out of the firm’s direct control, so it is somewhat locked into dealing with these cost levels once the location decision is made.
QUESTION: Discuss the tradeoffs with locating inventory at a factory versus locating it closer to the customer at a warehouse, distribution center, wholesaler, or retailers.